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Making Tax Digital has swung into effect this spring, meaning VAT-registered businesses with a turnover of more than £85,000 must submit their VAT returns using approved software. But what’s the best Making Tax Digital software?
Well, that very much depends on how you run your company’s books.
Making Tax Digital software – how to choose
There are two types of software you can use for Making Tax Digital. There are full-blown accountancy packages such as Sage, QuickBooks, Xero and FreeAgent, all of which can be used to submit VAT returns via Making Tax Digital.
Almost all of these packages are now “cloud-based”, which means your financial data is stored on the company’s servers and not your local computer. They do a lot more than totting up your VAT returns. They offer features such as invoicing, expenses tracking, cashflow management, payroll and more.
They normally cost a monthly fee, the price of which often depends on how many features you choose to use. All will link into your business bank account, but it’s important to check that the software package you plan on using supports your bank before you commit.
The second option is so-called bridging software. Most of the big accountancy packages will offer bridging software, and this is a workaround for companies who still like to do their company accounts on spreadsheets.
The bridging software will take the relevant information (ie. total value of sales) from your spreadsheet and use it to fill and submit the nine different pieces of data you must supply on your quarterly VAT return.
Bridging software is something of a sticking-plaster solution and not one I’d recommend unless you’re absolutely not ready to move your business to a full-blown accountancy package.
HMRC will eventually drop support for the bridging software, so you’ll have to suck up the pain at some point. If you can’t move right now, it makes sense to switch at the beginning of your company’s next financial year.
How does the software submit your VAT retun?
If all of your company’s invoices and expenses are recorded in an accountancy package, the software should be able to automatically generate your quarterly VAT return.
It will auto-populate the nine different boxes you need to send, ask you or your tax advisor/accountant to verify the figures are correct and then provide you with the option to submit the return from within the software. The example shown below is from Xero, which is the software I use for my own business.
The software will ask you for Government Gateway ID and password before you make your first submission. You must also sign up for Making Tax Digital via the Government website. This applies even if you were already submitting VAT returns from accountancy software previously.
Once you’ve pressed that big green button, the job’s done for another quarter.
Which Making Tax Digital software would you recommend?
As I said above, I use Xero for my business accounting, and despite a few annoying foibles, I find it very good for running a small business. VAT returns are particularly painless, requiring next to no effort on my behalf, as long as I’ve correctly categorised the VAT status of my freelance staff and purchases. (Pay particular attention to purchases from Amazon – some add VAT, others do not.)
Before you decide, check that your accountant supports your choice of software. Many will only support one or two different packages, and it’s critical your accountant can access your accounts for obvious reasons.
The other good reason for going with your accountant’s choice is that they often have deals with the software providers, meaning you might get a cheap introductory offer or an ongoing discount on your accountancy software subscription.
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